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" Order Without Law "

Abstract :
How do markets flourish in the absence of order provided by courts ? To study contract enforcement without law, we focus on illegal gambling markets, which are widespread across the world. We present quantitative evidence that even in the absence of legal enforcement authority, personal relationships, and violence, more than 70% of gamblers fulfill their contractual obligations in this illicit market. We provide experimental evidence for reputation in the honoring of contractual obligations and participation in this market. Extensions of the payment deadline also increases contract enforcement. Overall, we provide data and causal evidence that contract enforcement is possible in impersonal markets and without formal legal enforcement. Illegal gambling appears to thrive on the same principles of reputation and credit constraints that sustain modern legal markets.